NRS 522.140 Application
of chapter; lands subject to jurisdiction of United States.

NRS 522.150 Payment
of expenses for affiliation with Interstate Oil and Gas Compact Commission;
submission of monthly production report and payment of administrative fee by
producers; establishment of administrative fee by regulation.

NRS 522.010Waste of oil and gas prohibited.The
waste of oil and gas is prohibited in the State of Nevada.

[1:202:1953]

NRS 522.020Definitions.As
used in this chapter, unless the context otherwise requires, the words and
terms defined in NRS 522.021 to 522.0395, inclusive, have the meanings ascribed to
them in those sections.

NRS 522.021“Correlative rights” defined.“Correlative
rights” means the opportunity afforded, so far as it is practicable to do so,
to the owner of each property in a pool to produce without waste the owner’s
just and equitable share of the oil or gas, or both, in the pool and for this
purpose to use the owner’s just and equitable share of the reservoir’s energy.

NRS 522.0275“Hydraulic fracturing” and “hydraulically fractured” defined.“Hydraulic fracturing” or “hydraulically
fractured” means the process of pumping a fluid into or under the surface of
the ground to create fractures in the rock to facilitate the production or
recovery of oil or gas.

NRS 522.031“Owner” defined.“Owner”
means the person who has the right to drill into and produce from a pool and to
appropriate the oil and gas he or she produces therefrom for himself or herself
and others.

NRS 522.035“Pool” defined.“Pool”
means an underground reservoir containing, or appearing to contain, a common
accumulation of oil or gas. Each zone of a general structure which is
completely separated from any other zone in the structure is included in the
term “pool.”

1. The inefficient, excessive or improper
use of or unnecessary dissipation of reservoir energy.

2. The locating, spacing, drilling,
equipping, operating or producing of any oil or gas well in a manner which
results or tends to result in reducing the quantity of oil or gas to be
recovered from any pool in this state under operations conducted in accordance
with good engineering practices in an oil field.

3. The inefficient aboveground storage of
oil.

4. The locating, spacing, drilling,
equipping, operating or producing of any oil or gas well in a manner causing or
tending to cause unnecessary or excessive surface loss or destruction of oil or
gas.

5. Producing oil or gas in such manner as to
cause unnecessary water channeling or coning.

6. The operation of an oil well with an
inefficient ratio of gas to oil.

7. The drowning with water of any pool or
part thereof capable of producing oil or gas, except insofar as and to the
extent authorized by the Commission under this chapter.

8. Underground waste.

9. The creation of unnecessary fire
hazards.

10. The escape into the open air, from a
well producing oil or gas, of gas in excess of the amount which is reasonably
necessary in the efficient production of the well.

11. The use of gas for the manufacture of
carbon black, except as provided for in this chapter.

NRS 522.0395“Working interest” defined.“Working
interest” means the interest granted under an oil and gas lease, giving the
lessee the right to work on the leased property to search for, develop and
produce oil and gas.

(2) The making and filing of reports, well
logs and directional surveys. Logs of exploratory or “wildcat” wells marked
“confidential” must be kept confidential for 6 months after the filing thereof,
unless the owner gives written permission to release those logs at an earlier
date.

(3) The drilling, casing and plugging of
wells in such a manner as to prevent the escape of oil or gas out of one
stratum into another, the intrusion of water into an oil or gas stratum, the
pollution of fresh water supplies by oil, gas or salt water, and to prevent
blowouts, cavings, seepages and fires.

(4) The furnishing of a reasonable bond
with good and sufficient surety conditioned for the performance of the duty to
plug each dry or abandoned well or the repair of wells causing waste.

(5) The operation of wells with efficient
gas-oil and water-oil ratios, and to fix these ratios.

(6) The gauging or other measuring of oil
and gas to determine the quality and quantity thereof.

(7) That every person who produces oil or
gas in this State keep and maintain for a period of 5 years within this State
complete and accurate record of the quantities thereof, which must be available
for examination by the Division or its agents at all reasonable times.

(b) Regulate, for conservation purposes:

(1) The drilling, producing and plugging
of wells.

(2) The shooting and chemical treatment of
wells.

(3) The spacing of wells.

(4) The disposal of salt water, nonpotable
water and oil field wastes.

(5) The contamination or waste of
underground water.

(c) Classify wells as oil or gas wells for
purposes material to the interpretation or enforcement of this chapter.

NRS 522.050Application for issuance of permit or for change in terms of
existing permit; fees established by regulation; deposit of fees.

1. A person shall not drill or operate an
oil or gas well unless he or she first obtains a permit from the Division pursuant
to this section.

2. Every person desiring to drill and
operate an oil or gas well or requesting a change in the terms of an existing
permit to drill and operate an oil or gas well must:

(a) Submit an application for a permit or for a
request to change the terms of an existing permit, as applicable, to the
Division on the form prescribed by the Division; and

(b) Pay the applicable fee prescribed pursuant to
subsection 3.

3. The Commission on Mineral Resources
shall prescribe by regulation the fees for a permit to drill and operate an oil
or gas well and for a request to change the terms of an existing permit. The
amount of each fee prescribed by the Commission may include the reasonable
administrative costs of the Division relating to the filing and examination of
applications for such permits or for requests for changes in the terms of such
existing permits, as applicable, but the amount of the fee must not exceed:

(a) For a permit to drill and operate an oil or
gas well that is not intended to be hydraulically fractured, $2,000.

(b) For a permit to drill and operate an oil or
gas well that is intended to be hydraulically fractured, $5,000.

(c) For a request to change the terms of an
existing permit to drill and operate an oil or gas well, $400.

4. The Division shall, as soon as
practicable after receiving the proper application and fee, issue to the person
a permit or change the terms of an existing permit, as applicable, unless the
drilling or operation of the well is prohibited by any law or regulation or
order of the Division.

5. The Division shall deposit with the
State Treasurer, for credit to the Account for the Division of Minerals created
pursuant to NRS 513.103, all money
received pursuant to subsection 2.

1. For the prevention of waste, to protect
and enforce the correlative rights of lessees in a pool, and to avoid the
augmentation and accumulation of risks arising from the drilling of an
excessive number of wells, or the reduced recovery which might result from too
small a number of wells, the Division shall, after a hearing, establish a
drilling unit or units for each pool. The establishment of a unit for gas must
be limited to the production of gas.

2. Each well permitted on a drilling unit
must be drilled under such regulations and in accordance with such a spacing
pattern as the Division prescribes for the pool in which the well is located.
Exceptions to the regulations and spacing pattern may be granted where it is
shown, after notice and hearing, that the unit is partly outside the pool, or
for some other reason a well so located on the unit would be nonproductive, or
topographical conditions are such as to make the drilling at such a location
unduly burdensome. If an exception is granted, the Division shall offset any
advantage which the person securing the exception may have over other producers
and shall prevent or minimize drainage from developed units to the tract to
which the exception is granted. The producer of the well drilled as an
exception must be allowed to produce no more than a just and equitable share of
the oil and gas in the pool.

3. When two or more separately owned
tracts of land are within an established drilling unit, persons owning the
drilling rights therein and the right to share in the production therefrom may
agree to pool their interests and develop their lands as a drilling unit. If
those persons do not agree to pool their interests, the Division may, for the
prevention of waste, for the protection of correlative rights, or to avoid the
drilling of unnecessary wells, enter an order pooling and integrating their
interests for the development of their lands as a drilling unit. Orders
effectuating such pooling must be made after notice and hearing, and must be
upon terms and conditions which will afford to the owner of each tract the
opportunity to recover or receive the owner’s just and equitable share of the
oil and gas in the pool without unnecessary expense. Operations incident to the
drilling of a well upon any portion of a unit covered by a pooling order shall
be deemed for all purposes to be the conduct of the operation upon each
separately owned tract in the unit by the several lessees thereof. The portion
of the production allocated to the lessee of each tract included in a drilling
unit formed by a pooling order shall, when produced, be considered as if it had
been produced from the tract by a well drilled thereon.

4. If the pooling is effectuated, the cost
of development and operation of the pooled unit chargeable by the operator to
the other interested lessees is limited to the actual and reasonable
expenditures required for that purpose, including a reasonable charge for
supervision. As to lessees who refuse to agree upon pooling, the order must
provide for reimbursement for 300 percent of the costs chargeable to each
lessee out of, and only out of, production from the unit belonging to the
lessee. In the event of a dispute relative to those costs, the Division shall,
upon notice to all interested parties and hearing thereon, determine the proper
costs. Appeals may be taken from the determination as from any other order of
the Division. If one or more of the lessees drill and operate, or pay the
expense of drilling and operating, the well for the benefit of others, then in
addition to any other right conferred by the pooling order, the lessee or
lessees so drilling or operating have a lien on the share of production from
the unit accruing to the interest of each of the other lessees for the payment
of his or her proportionate share of the expenses. All the oil and gas subject
to the lien, or so much thereof as is necessary, must be marketed and sold by
the creditor, and the proceeds applied in payment of the expenses secured by
the lien, with the balance, if any, payable to the debtor.

5. The Division shall, in all instances
where a unit has been formed out of lands or areas of more than one ownership,
require the operator, upon request of a lessee, but subject to the right of the
operator to market production and collect the proceeds with respect to a lessee
in default, as provided in subsection 4, to deliver to the lessee or the
lessee’s assigns his or her proportionate share of the production from the well
common to the drilling unit. The lessee receiving his or her share shall provide
at the lessee’s own expense proper receptacles for the receipt and storage
thereof.

6. If the persons owning the drilling or
other rights in separate tracts embraced within a drilling unit fail to agree
upon the pooling of the tracts and the drilling of a well on the unit, and if
the Division is without authority to require pooling as provided by this
section, then subject to all other applicable provisions of this chapter, the
lessee of each tract embraced within the drilling unit may drill on the
lessee’s tract, but the allowable production from the tract is such a
proportion of the allowable production for the full drilling unit as the area
of the separately owned tract bears to the full drilling unit.

NRS 522.080Use of gas from well to manufacture carbon products without
permit is prima facie waste.The
use of gas from a well producing gas only, or from a well which is primarily a
gas well, for the manufacture of carbon black or similar products predominantly
carbon, is declared to constitute waste prima facie, and the gas well must not
be used for any such purpose unless it is clearly shown at a public hearing to
be held by the Division, on application of the person desiring to use the gas,
that waste would not take place by the use of the gas for the purpose applied
for, and that gas which would otherwise be lost is now available for that
purpose, and that the gas to be used cannot be used for a more beneficial
purpose, such as for light or fuel, except at prohibitive cost, and that it
would be in the public interest to grant the permit. If the Division finds that
the applicant has clearly shown a right to use the gas for the purpose applied
for, it shall issue a permit upon such terms and conditions as may be found
necessary in order to permit the use of the gas and at the same time require
compliance with the intent of this section.

NRS 522.082“Unit production” defined.As
used in NRS 522.082 to 522.0878,
inclusive, “unit production” includes all oil and gas produced from a unit area
from and after the effective date of the order of the Division creating the
unit regardless of the well or tract within the unit area from which it is
produced.

1. To prevent, or to assist in preventing
waste, as prohibited by this chapter, to ensure a greater ultimate recovery of
oil and gas, and to protect the correlative rights of persons owning interests
in the tracts of land affected, those persons may validly integrate their
interests to provide for the unitized management, development and operation of
those tracts of land as a unit. Where those persons have not agreed so to
integrate their interests, the Division, upon proper petition, after notice and
hearing, shall make and enforce such orders and do such things as may be
necessary or proper to carry out the purposes of NRS
522.0828 to 522.0878, inclusive.

2. The petition must set forth a
description of the proposed unit area with a map or plat thereof attached, must
allege the existence of the facts required to be found by the Division as
provided in NRS 522.0828 and must have attached
thereto a recommended plan of unitization applicable to the proposed unit area
and which the petitioner considers to be fair, reasonable and equitable.

NRS 522.0828Order for compulsory unitization: Findings required before
issuance.If upon the filing of a
petition and after notice and hearing, the Division finds that:

1. The unitized management, operation and
further development of a pool or portion thereof is reasonably necessary in
order effectively to carry on pressure control, pressure-maintenance or
repressuring operations, cycling operations, waterflooding operations, or any
combination thereof, or any other form of joint effort calculated to
substantially increase the ultimate recovery of oil and gas from the pool;

2. One or more of the unitized methods of
operation as applied to the pool or portion thereof are feasible, will prevent
waste and will, with reasonable probability, result in the increased recovery
of substantially more oil and gas from the pool than would otherwise be
recovered;

3. The estimated additional cost, if any,
of conducting those operations will not exceed the value of the additional oil
and gas so recovered; and

4. The unitization and adoption of one or
more of the unitized methods of operation is for the common good and will
result in the general advantage of the owners of the oil and gas rights within
the pool or the portion thereof directly affected,

Ê it shall
make a finding to that effect and make an order creating the unit and providing
for the unitization and unitized operation of the pool or portion thereof
described in the order, all upon such terms and conditions, as may be shown by
the evidence to be fair, reasonable, equitable, and which are necessary or
proper to protect, safeguard and adjust the respective rights and obligations
of the several persons affected, including royalty owner, owners of overriding
royalties, oil and gas payments, carried interests, mortgages, lien claimants
and others, as well as the lessees.

NRS 522.083Order for compulsory unitization: Limitations on area of pool to
be included in plan.

1. The order of the Division must define
the area of the pool or portion thereof to be included within the unit area and
prescribe with reasonable detail the plan of unitization applicable thereto.

2. Each unit and unit area must be limited
to all or a portion of a single pool. Only so much of a pool as has been
defined and determined to be productive of oil and gas by actual drilling
operations may be so included within the unit area. A unit may be created to
embrace less than the whole of a pool only where it is shown by the evidence
that the area to be so included within the unit area is of such size and shape
as may be reasonably required for the successful and efficient conduct of the
unitized method of operation for which the unit is created, and that the
conduct thereof will have no material adverse effect upon the remainder of the
pool.

1. No order of the Division creating a
unit and prescribing the plan of unitization applicable thereto becomes
effective unless:

(a) The plan of unitization has been signed or in
writing ratified, or approved by the lessees of record of not less than 62.5
percent of the unit area affected thereby and by the owners of record or not
less than 62.5 percent (exclusive of royalty interests owned by lessees or by
subsidiaries of any lessee) of the normal one-eighth landowners’ royalty
interest in and to the unit area; and

(b) The Division has made a finding either in the
order creating the unit or in a supplemental order that the plan of unitization
has been so signed, ratified or approved by lessees and royalty owners owning
the required percentage interest in and to the unit area.

2. Where the plan of unitization has not
been so signed, ratified or approved by the lessees and royalty owners owning
the required percentage interest in and to the unit area at the time the order
creating the unit is made, the Division shall, upon petition and notice, hold
such additional and supplemental hearings as may be requested or required to
determine if and when the plan of unitization has been so signed, ratified or
approved by lessees and royalty owners owning the required percentage interest
in and to the unit area and shall, in respect to the hearing, make and enter a
finding of its determination in that regard. If lessees and royalty owners, or
either, owning the required percentage interest in and to the unit area have
not so signed, ratified or approved the plan of unitization within a period of
6 months after the date on which the order creating the unit is made, the order
creating the unit ceases to be of further effect and must be revoked by the
Division.

NRS 522.0838Plan of unitization: Required provisions.The plan of unitization for each such unit and
unit area must be one suited to the needs and requirements of the particular
unit dependent upon the facts and conditions found to exist with respect
thereto. In addition to such other terms, provisions, conditions and
requirements found by the Division to be reasonably necessary or proper to
effectuate or accomplish the purpose of this chapter, and subject to further
requirements of this section, each such plan of unitization must contain fair,
reasonable and equitable provisions for:

1. The efficient unitized management or
control of the further development and operation of the unit area for the
recovery of oil and gas from the pool affected. Under such a plan the actual
operations within the unit area may be carried on in whole or in part by the
unit itself, or by one or more of the lessees within the unit area as the unit
operator subject to the supervision and direction of the unit, dependent upon
what is most beneficial or expedient. The designation of the unit operator must
be by vote of the lessees in the unit in a manner provided in the plan of
unitization and not by the Division.

2. The division of interest or formula for
the apportionment and allocation of the unit production among and to the
several separately owned tracts within the unit area such as will reasonably
permit persons otherwise entitled to share in or benefit by the production from
such separately owned tracts to produce and receive, in lieu thereof, their
fair, equitable and reasonable share of the unit production or other benefits
thereof. A separately owned tract’s fair, equitable and reasonable share of the
unit production must be measured by the value of each such tract for oil and
gas purposes and its contributing value to the unit in relation to like values
of other tracts in the unit, taking into account acreage, the quantity of oil
and gas recoverable therefrom, location on the structure, its probable
productivity of oil and gas in the absence of unit operations, the burden of
operation to which the tract will or is likely to be subjected, or so many of
such factors, or such other pertinent engineering, geological or operating
factors, as may be reasonably susceptible of determination.

3. The manner in which the unit and the
further development and operation of the unit area will be financed and the
basis, terms and conditions on which the cost and expense thereof will be
apportioned among and assessed against the tracts and interests made chargeable
therewith, including a detailed accounting procedure governing all charges and
credits incident to the operations. Upon and subject to such terms and
conditions as to time and rate of interest as is fair to all concerned,
reasonable provisions must be made in the plan of unitization for carrying or
otherwise financing lessees who are unable promptly to meet their financial
obligations in connection with the unit.

4. The procedure and basis upon which
wells, equipment and other properties of the several lessees within the unit
area are to be taken over and used for unit operations, including the method of
arriving at the compensation therefor, or of otherwise proportionately
equalizing or adjusting the investment of the several lessees in the project as
of the effective date of unit operation.

5. The creation of an operating committee
to have general overall management and control of the unit and the conduct of
its business and affairs and the operations carried on by it, together with the
creation or designation of such other subcommittees, boards or officers to
function under the authority of the operating committee as may be necessary,
proper or convenient in the efficient management of the unit, defining the
powers and duties of all those committees, boards and officers, and prescribing
their tenure and time and method for their selection.

6. The time when the plan of unitization
becomes effective.

7. The time when and the conditions under
which and the method by which the unit may be dissolved and its affairs wound
up.

NRS 522.084Plan of unitization: Modification; approval of owners not
required in certain circumstances.The
unit area of a unit may be enlarged to include adjoining portions of the same
pool, including the unit area of another unit, and a new unit created for the unitized
management, operation and further development of the enlarged unit area, or the
plan of unitization may be otherwise amended, all in the same manner, upon the
same conditions and subject to the same limitations as provided in NRS 522.082 to 522.0878,
inclusive, with respect to the creation of a unit in the first instance, except
that where the amendment to the plan of unitization relates only to the rights
and obligations as between lessees the requirement that it be signed, ratified
and approved by royalty owners of record of not less than 62.5 percent of the
unit area does not apply.

NRS 522.0844Property acquired by unit is owned by lessees subject to
management by unit.All property,
whether real or personal, which the unit may in any way acquire, hold or
possess, may not be acquired, held or possessed by the unit for its own account
but must be so acquired, held and possessed by the unit for the account and as
agent of the several lessees and is the property of the lessees as their
interests may appear under the plan of unitization, subject to the right of the
unit to the possession, management, use or disposal of the property in the
proper conduct of its affairs, and subject to any lien the unit may have on it
to secure the payment of unit expense.

NRS 522.0848Transfer of title to tracts and leases not required; proceeds
and production are income of owners.

1. This chapter does not require a
transfer to or vesting in the unit of title to the separately owned tracts or
leases within the unit area, other than the right to use and operate them to
the extent set out in the plan of unitization; nor may the unit be regarded as
owning the unit production. The unit production and the proceeds from the sale
thereof are owned by the several persons to whom they are allocated under the
plan of unitization.

2. Neither the unit production or proceeds
from the sale thereof, nor the other receipts may be treated or taxed as income
or profits of the unit; but instead, all such receipts are the income of the
several persons to whom or to whose credit they are payable under the plan of
unitization. To the extent the unit may receive or disburse the receipts it
shall only do so as a common administrative agent of the persons to whom they
are payable.

NRS 522.085Distribution of production; distribution in kind under certain
circumstances.

1. The amount of the unit production
allocated to each separately owned tract within the unit, and only that amount,
regardless of the well or wells in the unit area from which it may be produced
and regardless of whether it be more or less than the amount of the production
from the well or wells, if any, on any such separately owned tract, must be
considered as production from the separately owned tract, and, except as may be
otherwise authorized in this chapter, or in the plan of unitization approved by
the Division, must be distributed among or the proceeds thereof paid to the
several persons entitled to share in the production from the separately owned
tract in the same manner, in the same proportions, and upon the same condition
that they would have participated and shared in the production or proceeds
thereof from such separately owned tract had not the unit been organized, and
with the same legal effect.

2. If adequate provisions are made for the
receipt thereof, the share of the unit production allocated to each separately
owned tract must be delivered in kind to the persons entitled thereto by virtue
of ownership of oil and gas rights therein or by purchase from the owners
subject to the rights of the unit to withhold and sell it in payment of unit
expense pursuant to the plan of unitization, and subject further to the call of
the unit on such portions of the gas for operating purposes as may be provided
in the plan of unitization.

NRS 522.0854Expenses of unit: Liability of owners is several and limited to
amount charged.The obligation or
liability of the lessees or other owners of the oil and gas rights in the
several separately owned tracts for the payment of unit expense is at all times
several and not joint or collective and in no event is a lessee or other owner
of the oil and gas rights in the separately owned tract chargeable with,
obligated or liable, directly or indirectly, for more than the amount
apportioned, assessed or otherwise charged to his or her interest in such
separately owned tract pursuant to the plan of unitization and then only to the
extent of the lien provided for in NRS 522.0858.

1. Subject to such reasonable limitations
as may be set out in the plan of unitization, the unit has a first and prior
lien upon the leasehold estate and all other oil and gas rights (exclusive of a
one-eighth landowners’ royalty interest) in and to each separately owned tract,
the interest of the owners thereof in and to the unit production and all
equipment in the possession of the unit, to secure the payment of the amount of
the unit expense charged to and assessed against the separately owned tract.

2. The interest of the lessee or other
persons who by lease, contract or otherwise are obligated or responsible for
the cost and expense of developing and operating a separately owned tract for
oil and gas in the absence of unitization, is primarily responsible for and
charged with any assessment for unit expense made against the tract and resort
may be had to overriding royalties, oil and gas payments, royalty interests in
excess of one-eighth of the production, or other interests which otherwise are
not chargeable with that cost, only if the owner of interest primarily
responsible fails to pay the assessment of the production to the credit
thereof, or production is insufficient for that purpose.

3. If the owner of any royalty interest,
overriding royalty, oil or gas payment, or any other interest which under the
plan of unitization is not primarily responsible therefor pays in whole or in
part the amount of an assessment for unit expense for the purpose of protecting
that interest, or the amount of the assessment in whole or in part is deducted
from the unit production to the credit of that interest, the owner thereof is
to the extent of the payment or deduction subrogated to all the rights of the unit
with respect to the interest or interests primarily responsible for the
assessment.

4. A one-eighth part of the unit
production allocated to each separately owned tract must in all events be
regarded as royalty to be distributed to and among, or the proceeds thereof
paid to, the royalty owners free and clear of all unit expense and free of any
lien therefor.

NRS 522.086Operations under plan are considered fulfillment of provisions
in contracts relating to pool in unit.Operations
carried on under and in accordance with the plan of unitization must be
considered as a fulfillment of a compliance with all of the provisions,
covenants and conditions, express or implied, of the several oil and gas leases
upon lands included with the unit area, or other contracts pertaining to the
development thereof insofar as those leases or other contracts may relate to
the pool or portion thereof included in the unit area. Wells drilled or operated
on any part of the unit area, no matter where located, must for all purposes be
regarded as wells drilled on each separately owned tract within the unit area.

NRS 522.0864Property rights, leases and contracts regarded as modified to
conform to provisions of chapter and plan of unitization.Property rights, leases, contracts and all
other rights and obligations must be regarded as amended and modified to the
extent necessary to conform to the provisions and requirements of this chapter
and to any valid and applicable plan of unitization or order of the Division
made and adopted pursuant to this chapter, but otherwise to remain in effect.

NRS 522.0868Plan approved by Division does not violate statutes prohibiting
monopolies.No agreement or plan
for the development and operation of a field or pool of oil or gas as a unit,
if approved by the Division for the purpose of conserving oil or gas, violates
any of the statutes of this state prohibiting monopolies or acts, arrangements,
agreements, contracts, combinations or conspiracies in restraint of trade or
commerce.

NRS 522.087Implied covenants unaffected.NRS 522.082 to 522.0878,
inclusive, and any plan of unitization do not increase or decrease the implied
covenants of a lease in respect to a common source of supply or lands not
included within the unit area of a unit.

1. Except as otherwise expressly provided
in NRS 522.082 to 522.0878,
inclusive, all proceedings held under this chapter, including the filing of
petitions, the giving of notices, the conduct of hearings and other action
taken by the Division must be in the form and manner and in accordance with the
procedure and procedural requirements provided in NRS
522.090.

2. Such additional notice must be given as
may be required by the Division.

NRS 522.0878Operation of well in unit area by persons not included in unit
unlawful.After the effective date
of an order of the Division creating a unit and prescribing the plan of
unitization applicable thereto, the operation of any well producing from the
pool or portion thereof within the unit area defined in the order by persons
other than the unit or persons acting under its authority or except in the
manner and to the extent provided in the plan of unitization is unlawful.

NRS 522.090Regulations and orders of Division: Notice; hearing and entry of
order.

1. The Division shall make no regulation
or order, or amendment thereof, except in an emergency, without a public
hearing upon at least 10 days’ notice. The public hearing must be held at such
time and place as may be prescribed by the Division, and any interested person
is entitled to be heard.

2. Any notice required by this chapter
must be given by personal service on all interested persons, and if personal
service cannot be made, then substituted service may be made in the manner
provided for substitute service of process under the Nevada Rules of Civil
Procedure.

3. The Division may act upon its own
motion, or upon the petition of any interested person. On the filing of a
petition concerning any matter within the jurisdiction of the Division, the
Division shall promptly fix a date for a hearing thereon, and shall cause
notice of the hearing to be given. The hearing must be held without undue delay
after the filing of the petition. The Division shall enter its order within 30
days after the hearing.

NRS 522.100Witnesses: Attendance and testimony; production of books and
records; contempt.

1. The Division may summon witnesses and
require the production of records, books and documents for examination at any
hearing or investigation conducted by it. No person may be excused from
attending and testifying, or from producing books, papers and records before the
Division or a court, or from obedience to the subpoena of the Division or a
court, on the ground or for the reason that the testimony or evidence,
documentary or otherwise, required of the person may tend to incriminate the
person or subject the person to a penalty or forfeiture. This section does not
require any person to produce any books, papers or records, or to testify in
response to any inquiry not pertinent to some question lawfully before the
Division or court for determination. No natural person may be subjected to
criminal prosecution or to any penalty or forfeiture for or on account of any
transaction, matter or thing concerning which, in spite of the person’s
objection, the person may be required to testify or produce evidence,
documentary or otherwise, before the Division or court, or in obedience to its
subpoena, but no person testifying is exempt from prosecution and punishment
for perjury committed in so testifying.

2. In case of failure or refusal on the
part of any person to comply with the subpoena issued by the Division, or in
case of the refusal of any witness to testify as to any matter regarding which
the witness may be interrogated, any court of record in the State, upon
application of the Division, may issue an attachment for that person and compel
the person to comply with the subpoena, and to attend before the Division and
produce the person’s records, books and documents for examination, and to give
his or her testimony. The court may punish for contempt as in the case of disobedience
to a like subpoena issued by the court, or for refusal to testify therein.

NRS 522.110Application for rehearing.Within
20 days after written notice of the entry of any order or decision of the
Division, or such further time as the Division may grant for good cause shown,
any person affected thereby may file with the Division an application for the
rehearing in respect of any matter determined by the order or decision, setting
forth the respect in which the order or decision is believed to be erroneous.
The Division shall grant or refuse any such application in whole or in part
within 10 days after it is filed, and failure to act thereon within such period
is deemed a refusal thereof and a final disposition of the application. If the
rehearing is granted, the Division may enter such new order or decision after
rehearing as may be required under the circumstances.

NRS 522.113Payment of money derived from sale of production; liability for
violation; applicability.

1. The owner, lessee, operator or other
person who is liable for payment of the money derived from the sale of the
production from an oil or gas well located in this state shall:

(a) Pay the money directly to each person
identified as being legally entitled thereto not later than:

(1) Six months after the first day of the
month following the date of the first sale of the production, and thereafter
not later than 60 days after the end of the month within which subsequent
production is sold; or

(2) Twelve months after the first day of
the month following the date of the first sale of the production, and every 12
months thereafter, if the amount owed is $25 or less.

(b) If unable to pay timely any portion of the
money because of inability to locate a person entitled to receive the money or
for any other reason, deposit the unpaid portion of the money in an escrow
account in a bank, credit union or savings and loan institution in Nevada,
using a standard escrow document form approved by the Attorney General of
Nevada. The bank, credit union or savings and loan association must be federally
insured or insured by a private insurer approved pursuant to NRS 678.755. The deposit must earn
interest at the highest rate being offered by that institution for similar
deposits. The escrow agent may commingle money so received into escrow from any
one source. The escrow agent shall pay the appropriate amount of principal and
accrued interest from such an account to a person legally entitled thereto
within 30 days after the date of receipt by the escrow agent of a final legal
determination of entitlement thereto. Applicable escrow fees must be deducted
from the payment.

2. Any person who violates the provisions
of subsection 1 is liable to each person legally entitled thereto for the unpaid
amounts of money, together with interest at the rate of 18 percent per annum on
the unpaid balance from the date the payment was due pursuant to paragraph (a)
of subsection 1.

3. This section does not apply to payments
from an owner, lessee, operator or other person who is liable for payment of
the money derived from the sale of the production from an oil or gas well
located in this state to a person identified as being legally entitled to such
a payment if those persons have agreed in writing to some other period of
payment for the first payment or for subsequent payments.

NRS 522.115Respective rights; information to be reported with remittance;
liability for failure to report information.

1. For purposes of determining the
respective rights of the lessor and lessee and the owners of a royalty
interest, overriding royalty interest and any other nonworking interest in the
money earned from an oil and gas lease or other agreement concerning the sale
of the production from an oil or gas well located in this state:

(a) The lessee is liable for all of the costs of
production, which must be deducted from the working interest.

(b) The lessor’s interest, the mineral owner’s
royalty interest and the overriding royalty interest must not be decreased by
the costs of production.

(c) The following information must be reported
with each remittance, unless otherwise reported each month, to the owner of an
interest:

(1) The name or number used to identify
the lease, property or well;

(2) The month and year during which any
sale occurred for which payment is being made;

(3) The total number of barrels of oil or
thousands of cubic feet of gas sold;

(4) The price per barrel of oil or the
price per thousand cubic feet of gas;

(5) The total amount of state taxes on the
net proceeds of minerals, taxes ad valorem and other taxes on the production
from an oil or gas well, if the payment of those taxes reduces the amount paid
to the owner of an interest;

(6) An itemized list of any other
deductions or adjustments that reduce the amount paid to the owner of an
interest;

(7) The net value of total sales after
deductions or adjustments that reduce the amount paid to the owner of an
interest;

(8) The percentage share of the owner of
an interest in the sales of the production from the oil or gas well, lease or
property as expressed by a decimal number;

(9) The share of the total value
attributed to the owner of an interest in the sales of the production from the
oil or gas well, lease or property before any deductions or adjustments and
after any deductions or adjustments; and

(10) A name and an address where the owner
of an interest may receive clarification of the information reported pursuant
to this paragraph and additional information concerning the owner’s interest.
If information is requested by certified mail, an answer must be mailed by
certified mail within 30 days after receipt of the request.

2. Any person who fails to report
information pursuant to paragraph (c) of subsection 1 is liable to the affected
owner of an interest, except for the working interest, in the amount of $100
for each violation and $100 for each month that elapses thereafter until the
information is provided.

3. As used in this section, the term
“costs of production” means all costs incurred for the exploration and
development of, primary or enhanced recovery of oil or gas from, and operations
associated with the abandonment of, an oil or gas well, including costs
associated with the:

(d) Transporting of oil to storage tanks, or gas
into the pipeline for delivery.

Ê The term
does not include the reasonable and actual direct costs associated with
transporting oil from storage tanks to the market, gas from the point of entry
into the pipeline to the market or the processing of gas in a processing plant.

1. The provisions of NRS 522.115 govern the relationship between the
parties to an oil and gas lease, or other agreement, concerning the
determination and reporting of royalties, overriding royalties, working interests
or other nonworking interests from the sale of the production from an oil or
gas well located in this state, unless otherwise specifically provided within
such a lease or other agreement that has been reduced to writing and executed
by all of the affected parties.

2. A division order may not alter or amend
the terms of a previously executed oil or gas lease or other written agreement.
A division order that purports to alter or amend the terms of such a lease or
other agreement is invalid to the extent of the alteration or amendment and the
terms of the oil or gas lease or other written agreement govern.

1. Any person who willfully violates any
provision of this chapter, or any regulation or order of the Division is
subject to a penalty of not more than $1,000 for each act of violation and for
each day that the violation continues, unless the penalty for the violation is
otherwise provided for and made exclusive in this chapter.

2. If any person, for the purpose of
evading this chapter, or any regulation or order of the Division, makes or
causes to be made any false entry in any record, account or memorandum required
by this chapter, or by any such regulation or order, or omits or causes to be
omitted, from any such record, account or memorandum, full, true and correct
entries as required by this chapter, or by any such regulation or order, or
removes from this state or destroys, mutilates, alters or falsifies any such
record, account or memorandum, that person is guilty of a gross misdemeanor.

3. Any person knowingly aiding or abetting
any other person in the violation of any provision of this chapter, or any
regulation or order of the Division is subject to the same penalty as that
prescribed by this chapter for the violation by the other person.

4. The penalties provided in this section
are recoverable by suit filed by the Attorney General in the name and on behalf
of the Division in the district court of the county in which the defendant
resides or in which any defendant resides, if there is more than one defendant,
or in the district court of any county in which the violation occurred. The
payment of any such penalty does not operate to relieve a person on whom the
penalty is imposed from liability to any other person for damages arising out
of the violation.

1. Whenever it appears that any person is
violating or threatening to violate any provision of this chapter, or any
regulation or order of the Division, the Division shall bring suit against that
person in the district court of any county where the violation occurs or is
threatened to restrain the person from continuing the violation or from
carrying out the threat of violation. Upon the filing of any such suit, summons
issued to the person may be directed to the sheriff of any county in this state
for service by the sheriff or the sheriff’s deputies. In any such suit, the
court may grant to the Division, without bond or other undertaking, such
prohibitory and mandatory injunctions as the facts may warrant.

2. If the Division fails to bring suit to
enjoin a violation or threatened violation of any provision of this chapter, or
any regulation or order of the Division, within 10 days after receipt of
written request to do so by any person who is or will be adversely affected by
the violation, the person making the request may bring suit in his or her own
behalf to restrain the violation or threatened violation in any court in which
the Division might have brought suit. If, in the suit, the court should hold
that injunctive relief should be granted, then the Division must be made a
party and must be substituted for the person who brought the suit, and the injunction
must be issued as if the Division had at all times been the plaintiff.

NRS 522.140Application of chapter; lands subject to jurisdiction of United
States.

1. As the State of Nevada is a sovereign
state and not disposed to jeopardize or surrender any of its sovereign rights,
this chapter applies to all lands in the State of Nevada lawfully subject to
its police powers. It applies to lands of the United States or to lands subject
to the jurisdiction of the United States only to the extent that control and
supervision of conservation of oil and gas by the United States on its lands
fails to effect the intent and purposes of this chapter and otherwise applies
to those lands to such extent as an officer of the United States having
jurisdiction, or the officer’s authorized representative, approves any of the
provisions of this chapter or the order or orders of the Division which affects
those lands.

2. This chapter applies to any lands
committed to a unit agreement approved by the Secretary of the Interior of the
United States or his or her authorized representative, except that the Division
may, under the unit agreements, suspend the application of this chapter or any
part of this chapter so long as the conservation of oil and gas and the
prevention of waste is accomplished thereby, but the suspension does not
relieve any operator from making such reports as are necessary or advised to be
fully informed as to operations under the agreement and as the Division may
require under this chapter.

NRS 522.150Payment of expenses for affiliation with Interstate Oil and Gas
Compact Commission; submission of monthly production report and payment of
administrative fee by producers; establishment of administrative fee by
regulation.

1. Any expenses in connection with
Nevada’s affiliation with the Interstate Oil and Gas Compact Commission must be
paid from the Account for the Division of Minerals created pursuant to NRS 513.103.

2. For the purpose of paying the expenses
of the Division, each producer of oil or natural gas in this state shall, on or
before the last day of each month, report to the Division and the State
Treasurer the producer’s production in this state of oil in barrels and of
natural gas in thousands of cubic feet during the immediately preceding month,
and shall pay to the Division, concurrently with the submission of the report,
a fee in an amount established pursuant to subsection 3 on each barrel of oil
and each 50,000 cubic feet of natural gas produced and marketed by the producer
during the immediately preceding month. The Division shall deposit with the
State Treasurer, for credit to the Account for the Division of Minerals, all
money received pursuant to this subsection. Each person purchasing such oil or
natural gas is liable for the payment of the fee for each barrel of oil or each
50,000 cubic feet of natural gas, unless the fee has been paid by the producer.

3. The Commission on Mineral Resources
shall, by regulation, establish the administrative fee required pursuant to
subsection 2 in an amount not to exceed 30 cents for each barrel of oil or each
50,000 cubic feet of natural gas.

NRS 522.160Nevada to join Interstate Compact.The
Governor is authorized and directed, for and in the name of the State of
Nevada, to join with the other states in the Interstate Compact to Conserve Oil
and Gas, which was heretofore executed in the city of Dallas, Texas, on
February 16, 1935, and which is now on deposit with the Department of State of
the United States, and which has been extended to September 1, 1955, all with
the consent of the Congress of the United States.

[1:42:1955]

NRS 522.170Contents of Interstate Compact.The
Interstate Compact to Conserve Oil and Gas referred to in NRS 522.160 is as follows:

AN INTERSTATE COMPACT
TO CONSERVE OIL AND GAS

Article I

This agreement may become effective within any
compacting state at any time as prescribed by that state, and shall become
effective within those states ratifying it whenever any three of the States of
Texas, Oklahoma, California, Kansas and New Mexico have ratified and Congress
has given its consent. Any oil producing state may become a party hereto as
hereinafter provided.

Article II

The purpose of this Compact is to conserve oil and gas
by the prevention of physical waste thereof from any cause.

Article III

Each state bound hereby agrees that within a reasonable
time it will enact laws, or if laws have been enacted, then it agrees to
continue the same in force, to accomplish within reasonable limits the
prevention of:

(a) The operation of any oil well with an
inefficient gas-oil ratio.

(b) The drowning with water of any stratum
capable of producing oil or gas, or both oil and gas in paying quantities.

(c) The avoidable escape into the open air or the
wasteful burning of gas from a natural gas well.

(d) The creation of unnecessary fire hazards.

(e) The drilling, equipping, locating, spacing or
operating of a well or wells so as to bring about physical waste of oil or gas
or loss in the ultimate recovery thereof.

(f) The inefficient, excessive or improper use of
the reservoir energy in producing any well.

The enumeration of the foregoing subjects shall not
limit the scope of the authority of any state.

Article IV

Each state bound hereby agrees that it will, within a
reasonable time, enact statutes, or if such statutes have been enacted, then it
will continue the same in force, providing in effect that oil produced in
violation of its valid oil and/or gas conservation statutes, or any valid rule,
order or regulation promulgated thereunder, shall be denied access to commerce;
and providing for stringent penalties for the waste of either oil or gas.

Article V

It is not the purpose of this Compact to authorize the
states joining herein to limit the production of oil or gas for the purpose of
stabilizing or fixing the price thereof, or create or perpetuate monopoly, or
to promote regimentation, but is limited to the purpose of conserving oil and
gas and preventing the avoidable waste thereof within reasonable limitations.

Article VI

Each state joining herein shall appoint one representative
to a commission hereby constituted and designated as the Interstate Oil Compact
Commission, the duty of which said Commission shall be to make inquiry and
ascertain from time to time such methods, practices, circumstances and
conditions as may be disclosed for bringing about conservation and the
prevention of physical waste of oil and gas, and at such intervals as said
Commission deems beneficial it shall report its finding and recommendations to
the several states for adoption or rejection.

The Commission shall have power to recommend the
coordination of the exercise of the police powers of the several states within
their several jurisdictions to promote the maximum ultimate recovery from the
petroleum reserves of said states, and to recommend measures for the maximum
ultimate recovery of oil and gas. Said Commission shall organize and adopt
suitable rules and regulations for the conduct of its business.

No action shall be taken by the Commission except: (1)
By the affirmative votes of the majority of the whole number of the compacting
states, represented at any meeting, and (2) by a concurring vote of a majority
in interest of the compacting states at said meeting, such interest to be
determined as follows: Such vote of each state shall be in the decimal
proportion fixed by the ratio of its daily average production during the
preceding calendar half-year to the daily average production of the compacting
states during said period.

Article VII

No state by joining herein shall become financially
obligated to any other state, nor shall the breach of the terms hereof by any
state subject such state to financial responsibility to the other states
joining herein.

Article VIII

This Compact shall expire September 1, 1937. But any
state joining herein may, upon sixty (60) days notice, withdraw herefrom.

The representatives of the signatory states have signed
this agreement in a single original, which shall be deposited in the archives
of the Department of State of the United States, and a duly certified copy
shall be forwarded to the Governor of each of the signatory states.

This Compact shall become effective when ratified and
approved as provided in Article I. Any oil producing state may become a party
hereto by affixing its signature to a counterpart to be similarly deposited,
certified and ratified.

Done in the City of Dallas, Texas, this sixteenth day
of February, 1935.

[2:42:1955]

NRS 522.180Extension of expiration date of Compact; reentry of State after
withdrawal.

1. The Governor is authorized and
empowered, for and in the name of the State of Nevada, to execute agreements
for the further extension of the expiration date of the Interstate Compact to
Conserve Oil and Gas, and to determine if and when it shall be to the best
interest of the State of Nevada to withdraw from the Compact following a notice
of 60 days as provided by its terms.

2. In the event of withdrawal, the
Governor or any succeeding Governor may thereafter, in the Governor’s
discretion, effect the reentry of the State into the Compact as herein
provided.

[3:42:1955]

NRS 522.190Interstate Oil Compact Commission: State representation.

1. The Governor shall be the official
representative of the State of Nevada on the Interstate Oil Compact Commission
provided for in the Interstate Compact to Conserve Oil and Gas and shall
exercise and perform for the State all of the powers and duties as a member of
the Interstate Oil Compact Commission.

2. The Governor shall have the authority
to appoint an assistant representative who shall act in the Governor’s stead as
the official representative of the State as a member of the Commission. The
Governor’s official representative, if not already a state official, shall take
the oath of office prescribed by the Constitution and file the same with the
Secretary of State.